The measure to allow individuals to carry forward their unused concessional contributions (‘CC’) cap from previous financial years to a later year (‘the carry forward rule’) was announced on 3 May 2016 as part of the Government’s Superannuation Reform Package in the 2016–17 Federal Budget.
Broadly, the carry forward rule allows individuals to make additional CC in a financial year by utilising unused CC cap amounts from up to five previous financial years, providing their total superannuation balance just before the start of that financial year was less than $500,000.
| Description | 17–18 | 18–19 | 19–20 | 20–21 | 21–22 | 22-23 |
| Standard Concessional Annual Cap | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 |
| Less: Concessional Contributions made in this FY | nil | (6,000) | (5,000) | (3,000) | (3,000) | (45,000) |
| Unused Concessional Cap accrued in this FY | $0 | 19,000 | 20,000 | 22,000 | 22,000 | (20,000) |
| Opening Accrued Unused Cap | N/A | $0 | 19,000 | 39,000 | 61,000 | 83,000 |
| Plus: Unused Concessional Cap accrued in this FY | 19,000 | 20,000 | 22,000 | 22,000 | (20,000) | |
| Closing Accrued Unused Cap | 19,000 | 39,000 | 61,000 | 83,000 | 63,000 | |
| Standard Concessional Annual Cap | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 |
| Opening Accrued Unused Cap | 19,000 | – | 61,000 | 83,000 | ||
| Maximum Cap Available in this FY | 44,000 | 25,000 | 86,000 | 108,000 | ||
| Superannuation balance 30 June prior FY | N/A | 490,000 | 495,000 | 510,000 | 496,000 | 498,000 |
In 18-19, we can see that $6K has been contributed, with a remaining unused annual cap of $19K left. It is also critical to note the balance of the taxpayers’ superannuation from 17-18 (remembering that the super balance from the previous financial year is considered in the current financial year) is $490K and, thus, within the $500K threshold.
In 19-20, note that while the superannuation balance from 18-19 has drifted upto $495K, it is still within the $500K threshold. Therefore, the maximum cap available this year is $44K (being the standard annual $25K cap for 20FY + the remaining unused cap $19K from 18-19). Let’s assume contributions of only $5K have been made during this year. This means that none of the $44K carried-forward unused cap has been taken advantage of. In fact, this results in another $20K of unused cap being carried-forward in 20-21.
In 20-21, we find that the superannuation balance from 19-20 has increased materially to $510K, now being beyond the $500K threshold. This means that, while the total unused cap is now $39K (being the unused amount of $19K from 18-19 and $20K from 19-20) the only available cap balance is this years’ standard $25K threshold, as the unused carried-forward balance is ineligible for use due to the size of the superannuation balance. Critically, this unused cap of $39K doesn’t become void rather, under these current rules, it is temporarily frozen and not allowed to be carried forward into the maximum cap available for 21-22.
If, as in 19-20, the super balance had still been $495K, the total unused cap balance of $39K would have been added to the standard yearly cap of $25K, resulting in $64K being available. Now, let’s assume only $3K is contributed in 20-21, leaving the taxpayer with an annual unused cap of $22K that will be carried forward into 21-22, but not necessarily available, if the superannuation balance hasn’t dipped back below $500K.
In 21-22, the superannuation balance from end of 20-21 has now dipped below the threshold again, coming in at $496K. This means that the previously frozen unused cap of $39K is now unfrozen and becomes marked as “available” again. When combined with the standard annual $25K threshold for the year and $22K unused cap from 20-21, the available maximum contributable in the year is $86K. Let’s assume only $3K is again concessionally contributed to super, leaving the taxpayer with another unused annual cap of $22K. This results in an unused cap of $83,000 to be carried forward into 22-23.
Now, in 22-23, let’s assume that the taxpayer has received a number of large orders as a result of recommendations and word-of-mouth from other satisfied customers and has a substantial taxable income pending and that their financial planner has recommend that $45K be contributed to super to help reduce the pending tax payable. Assuming this is contributed, this now means that not only has the standard annual cap of $25K been exhausted, but that $20K of the accrued unused cap can now, finally, be beneficially utilised. As opposed to previous years where the residual unused annual cap was added to the opening balance from each year, this $20K draw-down now results in a closing unused cap of $63K.
Note that the difference between the closing accrued unused cap and the maximum cap is always the amount of the contribution made in any year.